B of A Seen as Next Big Bank Likely to Slide on Revenue Ills

Bank of America Corp.'s shares have fallen about 17% in two months, the biggest drop among the money-center banks.

Investors fear the $614 billion-asset, Charlotte, N.C., company will be the next big bank to disappoint Wall Street as it lumbers through the massive integration of NationsBank Corp. and the old BankAmerica Corp. The two merged last September.

With a further interest rate increase expected from the Federal Reserve, all bank stocks had come under heavy selling pressure until Friday's end-of-the-week rally. Bank of America was especially hard hit Thursday, when it reached an eight-month low of $59.0625. On Friday it rallied with the rest of the market, rising to $62.625. Yet, its price-to-earnings ratio now is the ninth-lowest of the 10 largest banking companies.

Investors' biggest fear is that much of Bank of America's energy is being drained by its efforts to make the merger work. And revenue growth may be the first victim.

Two other giant banking companies that bought big rivals have also had trouble. Revenue growth has been hurt at Bank One Corp., which bought First Chicago NBD Corp. in November 1998, and at Charlotte's First Union Corp., which bought Philadelphia-based CoreStates Financial Corp. in April 1998. And the stocks of both companies have been slammed.

The only large banking company with a price-to-earnings ratio lower than Bank of America's is Bank One. And First Union is not much better, ranking eighth out of 10.

"Investors are waiting for the other shoe to drop," said Andrew Collins, a bank analyst at ING Barings LLC. "There's only one other large banking company that could have a problem, and that company is Bank of America," he said.

Mr. Collins said Bank of America's compound revenue growth is the lowest among the money-centers. Based on his estimates, Bank of America's compound revenue growth annualized over the next two years will be 4%, compared with 10.7% projected for Chase Manhattan Corp. and 8% each for Bank of New York Co. and J.P. Morgan & Co.

"We could witness continued revenue weakness over the next six to 12 months, despite a healthy turnaround in corporate and investment banking earnings," warned Mr. Collins.

Another problem facing Bank of America is the makeup of its revenue stream, Mr. Collins said. Less than half of its revenues is expected to come from fees in 2000, compared with 83% at J.P. Morgan, 64% at Bank of New York, 61% at Chase, 54% for the combined Fleet-BankBoston, 52% at First Union Corp., and 45% at Wells Fargo & Co.

Investors prefer fee income because it is less vulnerable to rising rates than interest income, analysts said.

Edward Najarian, a bank analyst at First Union Capital Markets, is more sanguine about the company but also has some concerns. There is evidence that the company's net interest margin, based on average gross lending yields, could continue to suffer, he said. "Bank of America's average gross lending yield has declined faster than other large banks' over the last 12 months," he said.

Statistics compiled by First Union Capital Markets say the average gross yield on Bank of America's loan portfolios declined to 7.56% in the second quarter, compared with 8.34% a year earlier. That was a decline of 9.4%, much steeper than the average decline of 5% to 6% at 10 other superregional banks.